European consumers are keeping their wallets tightly zipped according to statistics agency Eurostat as spending slumped in the second quarter of the year.

In the twelve countries using the Euro currency, economic growth fell from 0.6% in Q1 to 0.5% as unemployment worries and a general reluctance to spend hit the region.

Germany is making a significant contribution to the phenomenon. Not only have Chancellor Gerhard Schröder's plans to reduce benefits met with falling consumer confidence, but the nation has also emerged as one of savers rather than spenders. Over the last three years, the savings rate has increased from 9.8% to 11%.

And this is bad news for the economy. Says the Society for Consumer Research's economist Wolfgang Twardawa: "Each percentage point of Germany's savings rate keeps roughly 15 billion euros [$18bn; £10.2bn] out of circulation."

Germany's finance minister Hans Eichel now believes that the EU will fall short of its goal, set in Lisbon in 2000, to become the globe's most competitive economy by 2010.

But it's not all bad news from Europe's largest economy. Strong demand for German exports boosted industrial production by 1.6% in July, although this is, as yet, insufficient to raise economic growth in the country.

Data sourced from: New York Times; additional content by WARC staff